Changes in reimbursement or in how specialty drugs are prescribed will impact the bottom line of specialty pharmacies.
FOR SOME TIME NOW, we have witnessed both federal and state budgets shrinking as health care costs continue to rise, especially in the specialty sector, which is reflected in Medicare Part B spending.
These competing forces cannot continue in a sustained manner without significant damage to both our economy and patient care. This column will examine the latest debate on possible changes to Part B reimbursement. This is important for specialty providers to understand, as any changes in reimbursement or in how specialty drugs are prescribed, will undoubtedly impact your bottom line, as well as how your patients are cared for.
Since late 2014, the Medicare Payment Advisory Commission (MedPAC) has become increasingly vocal in its concerns on rising Medicare Part B costs, particularly surrounding physician reimbursement for oncology medications. MedPAC is a nonpartisan entity tasked with making Medicare policy recommendations to Congress. As oncology drugs play a significant role in rapidly rising specialty drug costs, MedPAC has debated whether the US Centers for Medicare and Medicaid Services’ (CMS) current Part B reimbursement model of average sales price (ASP) plus 6% incentivizes physicians to prescribe more expensive office-administered drugs.
For example, under the CMS model, if the ASP of a Medicare Part D drug is $100, a physician will receive $106 due to the plus-6% metric, regardless of how much he or she pays for the drug. If, however, another drug with no clinical distinction has an ASP of $200, then the physician would receive $212. Hence, the concern of MedPAC policy makers is that physicians could make more money by administering the more expensive product that may or may not have an improved effect on patient outcome over the lower-priced drug.
These concerns by the commission have been voiced to Congress. In response to last year’s enactment of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), which called for merit-based incentive payment systems and alternative payment models to pay for value and improve care, CMS surprised many industry insiders with its March announcement1 of the Medicare Part B Payment Model, otherwise known as the Part B demonstration.
It seems as though CMS believes its demo release could be a method to achieve cost containment within Medicare Part B. According to the agency’s claims data, CMS estimates that “total Part B payments for separately paid drugs in 2015 were $22 billion (this includes cost sharing). This significant growth has largely been driven by spending on separately paid drugs in the hospital outpatient setting, which more than doubled between 2007 and 2015, from $3 billion to $8 billion respectively.”2
Hence, the agency’s belief that Part B costs must be curtailed. The proposed demo is a 2-phase model that evaluates alternative drug payment designs in hopes of reducing Medicare expenditures, while boosting the quality of care Medicare beneficiaries receive. The first phase calls for the 6% ASP add-on for drug payments under Part B to decrease to 2.5% plus a flat fee. The second phase involves value-based purchasing tools that mirror tools used by commercial health plans, pharmacy benefit managers, hospitals, and other groups involved in the management of health benefits and drug utilization.3
In the first phase, physicians will be placed in groups based on their zip codes, and will receive a flat fee of $16.80. Phase 2 is expected to limit patient out-of-pocket cost sharing; however, details on this proposal need to be expanded on. If finalized, the model is expected to last 5 years.
Following this announcement, MedPAC, via its biannual report to Congress released in June 2016, disclosed its own recommendations to reign in physician and prescription drug costs under MACRA. In acknowledging the growing concern for the current ASP plus 6% Part B reimbursement model, MedPAC proposed converting part of the 6% add-on to a flat fee of 103.5% of the ASP plus $5 per drug administered per day.
The MedPAC proposal could raise add-on payments for drugs with an ASP per administration more than $200, while decreasing add-on payments for high-priced drugs. This proposal is projected to save approximately 1.3% of $21 billion Part B drug spending if there are no utilization changes. Additionally, it could increase the likelihood of a provider choosing the lower cost drug when there are differently priced alternatives available, which could save money for Medicare and its beneficiaries.4
In case Congressional policy makers wanted to go further influencing Medicare Part B payments, MedPAC, in its June report, suggested additional methods to consider:
As the debate over the direction of Part B spending has shifted more to Congress, a recent report by Public Citizen shows how pharmaceutical campaign contributions are influencing this debate.
While both Republicans and Democrats have sent letters expressing their viewpoints on the plan to move forward with Medicare Part B changes, the Public Citizen report titled Pharma’s Orders: U.S. Representatives Who Sided With Big Pharma In The Medicare Lobbying Fight Received 82% More Industry Campaign Contributions.5
Below are some of the report’s key findings:
With the election season in full swing, it remains to be seen which direction policy makers take to slow Medicare Part B costs. Does the Obama Administration have enough time before January 2017 to implement additional Part B changes via the CMS Part B demo? Will oncology be excluded from the demo? Will Congress implement MedPAC’s suggestions from its June report? Will the next Administration take Medicare Part B in a completely different direction? Only time will tell.
But, as specialty providers, it is imperative that you keep an eye on this discussion to determine how your practice will be impacted. It is always better to be prepared than surprised.
About the Author
RON LANTON III, ESQ is president of True North Political Solutions, LLC. He has over 20 combined years of government affairs and legal experience. This includes activities on the municipal, state, and federal levels of government. Most recently, he worked for a pharmaceutical wholesaler where he created and oversaw the company’s government affairs department, served as their exclusive lobbyist, and advocated for the company’s various health care customers. Prior to that, Ron worked at a government affairs consulting firm in Arlington, Virginia, where he focused on health care, energy, commerce, and transportation issues. He has also clerked for a federal magistrate, was appointed as a municipal commissioner on environmental issues, and has served as consultant to Wall Street firms on financial issues. He has been a featured industry speaker on issues such as pharmaceutical safety and health care cost containment. Ron earned his juris doctor from The Ohio State University Moritz College of Law and a bachelor of arts from Miami University of Ohio. He is also a “40 Under 40” award recipient. He is admitted to practice law in New York, Illinois, and the District of Columbia.